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Are You Prepared For The Next Market Downturn?

| June 26, 2017
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Market headlines in the first part of the year have been a roller-coaster of information. The Dow hit 20,000, our markets reacted to one of the most unpredictable presidential elections in history, and our current market is fueled with speculation. For current investors in the market, these highs are good news. But as we all know, what goes up must come down.

 

Let’s take a brief look at the current market conditions:

 

  • We have been in a bull market (stocks going up) for 8 years, since the crash in 2009.
  • JPMorgan states that global economic volatility is at its lowest in over 40 years[1]
  • In the beginning of the year, the Dow Jones, S&P 500, and the NASDAQ all hit record highs. The Dow Jones is a price-weighted index, not a market capitalization weighted index. That means that stocks may be overvalued with little to no substantiation to these claims.

 

These are a few market takeaways as we enter the start of Q4 in 2017. Many financial experts predict that because the market is so over-inflated right now, a market correction is on its way.[2] Market corrections are healthy and something that investors should prepare for. But are you prepared?

 

In order to safeguard your portfolio, you may benefit from focusing on diversification and your exposure to risk.

 

Diversification

You’ve heard it before, but mixing up your portfolio is key to protecting yourself against market downturns. Stocks are going to continue to rise and fall and because of that, financial advisors often recommend investing yourself in many different areas. Then, when the market corrects itself you will likely be more protected.

 

Because various investments behave differently, your diversified portfolio won’t directly mirror the market’s highs and lows. Different products include small and large company stocks, real estate investment trusts, emerging market stocks, bonds, gold or other tangible investments, and many more.

 

Exposure to Risk

Depending on the time frame of your goals, your exposure to risk will vary. We talked before about the difference between saving for short and long-term goals and let’s quickly look again at the role risk plays in financial planning.

 

When you are planning for a long-term goal, like retirement, in the beginning of your career you can afford to take more risk. This is because if the market were to drop, you would likely have time to build your portfolio back up before you have to rely on it for your retirement income. But if you are a few years out of retirement, you might want to consider low-risk investments to help secure your portfolio preservation. Any investor in the market is exposed to risk, but a financial advisor can help make sure that exposure is aligned with your goals and risk tolerance.

 

In addition to goal-based risk tolerance, all of us have an emotional-based risk tolerance. Whether or not you can stomach the swings of the market will determine how much risk you can take with your investments. Meeting with a financial advisor to discuss these concerns is key to building a financial plan where you can sustain growth but also lower your stress level.

 

A market correction isn’t always a bad thing and in fact, it’s a healthy part of our economic climate. That said, though, investors want to know that they are prepared if, and when, that market downturn comes. By analyzing your diversification, evaluating your exposure to risk, and meeting with a professional advisor, you can help safeguard your investments and educate yourself on today’s market changes.

 

 

 

 

Bo Thibodeaux is a Financial Advisor offering securities and insurance products through Cetera Investment Services LLC, member FINRA/SIPC. Advisory Services are offered through Cetera Investment Advisers LLC. Cetera is not affiliated with the financial institution where investment services are offered. Investments are: * Not FDIC/NCUSIF insured * May lose value * Not financial institution guaranteed * Not a deposit * Not insured by any federal government agency. 135 West Colorado, LaGrange, TX 78945 (979)968-4500

 

 

Investors cannot invest directly in indexes. The performance of any index is not indicative of the

performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.

 

A diversified portfolio does not assure a profit or protect against loss in a declining market.

 

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

 

 

[1]https://www.irishtimes.com/business/personal-finance/stocktake-political-chaos-financial-calm-are-stock-markets-trump-proof-1.3119606

[2]http://www.cnbc.com/2017/03/15/top-strategist-says-a-correction-is-coming-but-heres-why-you-should-buy-into-it.html

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